But all that wisdom wasn’t enough to keep Professor Davis from being blindsided Friday, when Pacific Gas & Electric, the state’s largest utility, filed for bankruptcy, saying it could no longer wait for a political solution to the state’s deepening energy crisis. PG&E has racked up $9 billion in debt from buying power at higher wholesale prices than it is allowed to pass on to consumers under the state’s flawed deregulation scheme. The debt was continuing to grow at $300 million a month. Both PG&E and Southern California Edison, the second largest utility, had been negotiating for months with Davis’s representatives for a bailout. “The political and regulatory processes have failed us,” said PG&E chairman Robert Glynn after the bankruptcy filing. “Now we are turning to the court.”
The bankruptcy, which surprised Wall Street-and sent PG&E shares plunging-has transformed California’s impenetrable regulatory struggle into a full-fledged political soap opera. Davis was so stunned by the news he didn’t respond publicly for hours. Finally, on Friday afternoon, his office issued a statement accusing PG&E of causing “undue alarm” and of “[plunging] themselves into bankruptcy for their own strategic advantage.” In a statewide televised address on Thursday, Davis told Californians he had reluctantly concluded that rate increases would be necessary, in part to help the strapped utilities stay afloat. “The governor took the unpopular stance of protecting a company that is probably more loathed than even the HMO’s,” says his spokesman Steve Maviglio. “And then he gets stabbed in the back.”
To add insult to injury, the state controller Kathleen Connell-a fellow Democrat-blamed Davis for jeopardizing the state’s balance sheet. “Now we have to get in line with all the other creditors,” said Connell. “This could have been avoided.” The bankruptcy may not affect consumers for a while. Northern California, which is served by PG&E, will continue to get its spotty power allotment, while a federal judge sorts out which of PG&E’s thousands creditors will get paid first. But company officials made no secret of the fact they hope a federal bankruptcy judge will eventually allow them to charge consumers higher rates than they are currently permitted by the state.
The political implications for Davis, who is rumored to have presidential aspirations, are huge. For better or worse, he has become the public face of the California energy crisis-and his approval ratings are starting to slip.
Davis initially won sympathy from voters by reminding them that he inherited deregulation from his Republican predecessor, Pete Wilson, and for blasting electricity wholesalers as “out-of-state speculators.” So far though, Davis-who is up for reelection next year-has failed at two of his stated goals: protecting consumers from higher rates and keeping the utilities solvent. And his finger-pointing is beginning to grate on members of his own party. “This was the equivalent of ‘PG&E to Davis: Drop Dead,’” says one prominent Democrat.
The saga gets even more dramatic next month, with the start of air-conditioning season. The temperature will be rising in more ways than one as rolling blackouts resume.
